Ngoc Day of Macdonald Shymko & Co. Ltd.ART OF HEADSHOTS STUDIOS/Supplied
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This is the latest article in an ongoing series, Planning for the CPP, in which Globe Advisor explores the decisions behind when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
As part of this ongoing series, we invite readers to ask questions about their Canada Pension Plan (CPP) retirement benefits and find experts to answer them. This week, Ngoc Day, a financial advisor with Macdonald Shymko & Co. Ltd. in Vancouver, answers questions about newcomers to Canada and when early retirees should consider taking their CPP benefits.
My question is about newcomers to Canada. How does the government support those who only start paying into CPP later in life, for example, in their 40s, because they’re immigrants? Can they access a pension from their other country before coming to Canada? What if there’s no pension there?
Welcome to Canada! As you’ve left your country with a familiar culture and retirement system, let’s help you understand Canada’s retirement benefits. Canada doesn’t prohibit immigrants from receiving pensions from their countries of origin. Canada also has tax treaties with many countries to avoid double taxation of foreign pensions.
Once you start working and contributing to the CPP in Canada, you will accrue CPP credits. However, due to the reduced contributory period, you probably will not qualify for maximum CPP benefits.
In addition to CPP benefits, Canada provides additional retirement income via Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
Even though you may not contribute to CPP long enough to qualify for the maximum CPP benefit, you could qualify for a partial OAS benefit if you’re older than 65 and have lived in Canada for at least 10 years. As the maximum OAS benefit is based on living 40 years in Canada, partial OAS benefit is prorated on the number of years living in Canada divided by 40.
An immigrant 65 or older with low income may also be eligible for GIS benefits. Their spouse may also be eligible for the allowance between ages 60 to 64. GIS and allowance benefits are income-tested. A single retiree could be eligible for GIS if their income is below $21,624. You should contact Service Canada for eligibility.
When should early retirees take the CPP? As an example, if someone retires in their early 50s, should they wait until 60, 65 or 70 to start collecting their CPP benefits?
A person can start CPP as early as 60 or as late as 70. If they start CPP benefits before 65, payments will decrease by 0.6 per cent a month (or by 7.2 per cent a year), up to a maximum reduction of 36 per cent if starting at 60. If they start after 65, payments will increase by 0.7 per cent each month (or by 8.4 per cent a year), up to a maximum increase of 42 per cent if starting at age 70.
CPP payments are also indexed, providing inflation protection.
If financially feasible and assuming good health, a person could consider deferring their CPP benefits as late as possible to maximize lifetime CPP benefits with indexation. For example, deferring CPP benefits is a good choice if a retiree has sufficient work pension or that of their spouse to cover expenses and has no health concerns.
However, early collection may make sense in some situations, such as reduced life expectancy due to health concerns or the need for retirement cash flow.
Before making this important choice, individuals need to evaluate their cash flow needs, overall income level and income tax rate, and health status, and weigh the upside of receiving CPP payments early versus the downside of reduced payments for life.
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